Q INTRODUCTION VC ACTIVITY OVERVIEW. Summary of investment and fundraising. ($ millions)

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1 INTRODUCTION This issue discusses venture capital (VC) investment and fundraising activity in Canada during the third quarter of 21, covering July through September 21. VC ACTIVITY OVERVIEW Table 1: VC investment and fundraising, Q3 29 and Q3 29 % Change Investment Fundraising Summary of investment and fundraising A total of $264 million (18 deals) was invested in VC in representing a 19 percent increase from the $222 million invested in Q3 29, but falling short of the $335 million invested during the previous quarter (Table 1). Combined, VC investments during the first three quarters of 21 have reached $99 million, an increase of 27 percent over the same period last year ($714 million) (Figure 1). Despite these gains, VC activity in Canada is still 17 percent short of the $1.1 billion invested in the same period in 28. VC fundraising in totalled approximately $35 million, a significant decline from the $118 million committed during the same period last year. Notably, over this period there were no major VC partnership closings; instead all new fundraising during this period was accounted for by labour sponsored venture capital corporations (LSVCCs) and other retail funds. As a result, VC fundraising levels in Canada to date in 21 are approaching the historically low levels of 29. Figure 1: VC Investment by quarter, Q1 28 to Q Q * Through three quarters. Q * Q4

2 Deal size Increase in year over year deal sizes In contrast to disbursements, the total number of innovative firms backed with VC between July and September (18) remained the same year over year. However, average deal sizes grew in ($2.4 million) from the Q3 29 average ($2. million), thus accounting for the increase in disbursements. This is reflected in the share of deals greater than $5 million, as shown in Figure 2. Figure 2: Distribution of VC investment by deal size, Q3 29 and (%) Q3 29 Under $1M $1M to 4.9M Stage of development $5M and over Decrease in seed/start-up investment, but increase in large later stages The increase in VC investment from Q3 29 compared to was concentrated in firms receiving later stage financing. Investment in companies at the seed and start-up stages of development declined from $43 million to $31 million over this period. Only three investments were made in seed-stage companies, compared to eight over the same period last year. The overall number of investments in later stage companies decreased but their value increased reaching $142 million (61 deals), up from $113 million (64 deals) in Q3 29 (Figure 3). Figure 3: VC investment by stage of development, Q3 29 and Q3 29 Seed/start-up 113 Other early stages Later stages New versus follow-on investments New investments drop in the earlystages but increase in the later stages There were first-round VC deals in, which is slightly less than the average observed over the previous four quarters. First-time deals at the seed and start-up stages of development remained low with only 5 in, compared to the average of 12 over the previous four quarters. In contrast, at the later stages of development, first-time VC deals continued to increase. This may be attributed to the return of American VC funds and other foreign investors that have traditionally tended to invest in Canadian companies at the later stages of development (Table 2). 2 Venture Capital Monitor

3 Table 2: The number of companies that received new and follow-on investment, Q3 29 to Q3 Q4 Q1 Q2 Q3 Investment New Follow-on Seed/ start-up Other early stages Later stage All Seed/ start-up Other early stages Later stage All Type of investor Increase across all types of investors The three main types of Canadian VC investors increased their activity in relative to the same quarter last year (Figure 4). The amount invested by foreign funds in continued to recover since 28, as Canadian companies attracted $92 million in foreign financing worth 35 percent of the total. This represents a 19 percent increase over the same period last year. Fundraising No major VC partnership closings during Canadian VC funds raised $35 million in, down from $118 million over Q3 29. Most notably, no major private independent funds raised new funding during this period. Instead, nearly the entire supply of new funding was accounted for by LSVCCs and other retail funds. Consequently, the value of VC funds raised in Canada during the first three quarters of 21 ($611 million) is nearing the historically low levels of 29. Of particular note, retail funds are outpacing private funds in terms of fundraising so far in 21. Figure 4: Distribution of VC investment by type of investor, Q3 29 and LSVCC/ retail funds Private independent funds Foreign funds Q3 29 Regional distribution Increase in VC investment in Ontario and British Columbia In, the value of VC invested in two of Canada s three most populous provinces (Ontario and BC) increased compared to the same period in 29, despite the number of companies receiving VC in BC declining by 47 percent (Table 3). The largest increase occurred in Ontario, where companies received $8 million more than over the same period in 29 and as a result Ontario captured 46 percent of all Canadian disbursements in. Throughout 29 and the first half of 21, Quebec-based VC activity has most often led trends in the Canadian market. This was not the case in as investment in Quebec companies dropped to $79 million down 22 percent from the $97 million invested over Q3 29 (Figure 5). 92 Venture Capital Monitor 3

4 Table 3: Number of companies receiving VC by province, Q3 29 and Q3 29 % Change British Columbia Alberta 5 7 Saskatchewan Manitoba 2 2 Ontario Quebec New Brunswick Nova Scotia 2 2 Prince Edward Island Newfoundland 2-1 Territories Sector distribution Increase in information technology and life sciences; fall in energy and environmental technologies In, compared to the same period last year, there was an increase in VC investment in two of three major sectors: life sciences and information technology. The energy and environmental technologies sector had its lowest quarter since 28 with approximately $21 million invested in companies. The fall in energy and environment technology investments compared to Q3 29 was a result of smaller deal sizes in the sector as the average deal size fell from approximately $7 million to $2.7 million. The information technologies sector accounted for the majority of VC investment during the quarter (51 percent) (Figure 6). Figure 5: Regional distribution of VC investment in Canada, Q3 29 and British Columbia Alberta Saskatchewan.1 3 Manitoba.3 Ontario Quebec Q New Brunswick 7 Nova Scotia 3 Prince Edward Island 16 Newfoundland Territories 4 Venture Capital Monitor

5 Figure 6: VC investment by industry sector, Q3 29 and Life Sciences Information Technologies Q3 29 Energy and Environmental Technologies Other Technologies Traditional Government activities New federal funding for Ontario venture capital financed start-up companies During, the Business Development Bank of Canada (BDC) made VC commitments totalling $11 million in seven companies. These financings were worth a total of $42.2 million including contributions by co-investors. This activity was in addition to any investment in private independent funds made by the BDC during the quarter (Table 4). On October 15, 21 Prime Minister Stephen Harper announced the launch of the $19 million Investing in Business Innovation program to be run through the Federal Economic Development Agency for Southern Ontario (FedDev Ontario). By providing eligible start-up businesses with repayable contributions of up to $1 million, the program is designed to accelerate the commercialization of new products, processes and practices by encouraging greater collaboration between start-up businesses and angel and venture capital investors Table 4: VC activities of the Business Development Bank of Canada, BDC Coinvestors Total Number of deals Seed and start-up Development Later stage Total Source: Business Development Bank of Canada 21. To be considered eligible for the program, the business must be a start-up organization with less than 5 employees and have a signed draft term sheet from a recognized angel or venture capital investor. The program is also designed to leverage the investments of angel investor networks, and the organizations that represent them, to help attract new investors. Further details about this, and other FedDev Ontario programs that provide support for eligible small businesses, can be found online at home. Nova Scotia Premier Darrell Dexter recently announced at the 21 Power of Green Conference, that the province is exploring forming a privately operated venture capital fund, targeting opportunities throughout Atlantic Canada. Premier Dexter said the proposed venture capital fund is an opportunity for regional co-operation for a stronger and more prosperous Atlantic Canada. It is anticipated that once established the fund will raise capital from the private sector and other institutional investors. Venture Capital Monitor 5

6 NOTES This publication is part of a series prepared by the Small Business and Tourism Branch. The branch analyses the financial marketplace and how trends in this market impact small businesses access to financing. Current research is focused on highgrowth firms, the aspects of both Canada s VC and general business environment that affect the success of these firms, and the key players in the risk-capital market (for example, VC firms and angels). The Small Business and Tourism Branch is also responsible for the Small and Medium- Sized Enterprise Financing Data Initiative (SME FDI). The SME FDI is a comprehensive datacollection program on SME financing in Canada. In partnership with Statistics Canada and Finance Canada, Industry Canada reports on the supply of and demand for financing by small and mediumsized businesses. Further information and statistical findings and reports are available at To be added to the distribution list for this quarterly publication or for questions related to its content, please contact Michael Scholz at or Michael.Scholz@ic.gc.ca. COPYRIGHT This publication is available upon request in accessible formats. Contact: Multimedia Services Section Communications and Marketing Branch Industry Canada Room 441E, East Tower 235 Queen Street Ottawa ON K1A H5 Tel.: Fax: multimedia.production@ic.gc.ca This publication is also available electronically on the World Wide Web in HTML format at the following address: Permission to Reproduce Except as otherwise specifically noted, the information in this publication may be reproduced, in part or in whole and by any means, without charge or further permission from Industry Canada, provided that due diligence is exercised in ensuring the accuracy of the information reproduced; that Industry Canada is identified as the source institution; and that the reproduction is not represented as an official version of the information reproduced, nor as having been made in affiliation with, or with the endorsement of, Industry Canada. For permission to reproduce the information in this publication for commercial redistribution, please droitdauteur.copyright@tpsgc-pwgsc.gc.ca. Cat. No. Iu186-2/21-3E-PDF ISSN Aussi offert en français sous le titre Le Moniteur du capital de risque Troisième trimestre de Venture Capital Monitor